United States: Tribal Utility Development Energy Development And Services On Tribal Land

With over 19 million acres of reservation trust lands in the
state of Arizona, and approximately 40 percent of the renewable
energy resources in the state,1 the 22 federally
recognized Indian tribes are uniquely positioned to take advantage
of their energy resources to promote more energy
development—especially clean energy— and improved
energy services to tribal communities. Five of those
tribes—Navajo, Tohono O'odham, Ak Chin, Gila River Indian
Community, and Fort Mojave—have been operating tribal
electricity utilities for decades.2 More and more tribes
in the state have begun evaluating the economic and technical
feasibility of operating their own electricity utility.

Benefits of Tribal Electric Utility Ownership

A few of the major economic benefits of tribal electric utility
ownership and operation include the following.

Tribal Sovereignty and Control

Many Arizona tribes and tribal members have expressed
substantial concern over climate change impacts, clear air issues,
greenhouse gas emissions, and rising electricity costs. Through a
tribal utility, these tribes can reduce their dependence on fossil
fuel electricity (such as coal and natural gas), increase their use
of renewable energy and distributed energy resources, and reduce
electricity costs through the acquisition of electricity of their
choosing.

Furthermore, a tribal utility can be a vehicle for developing
tribal renewable energy resources for both on-reservation and
off-reservation use.3 This provides the tribe with a
greater degree of control over the development of those energy
resources, while maintaining a separation of effort between the
tribal government and the tribal utility's enterprise
efforts.

Cost Reduction and Management of Electricity Costs

A tribal utility can control its electricity costs through
access to the wholesale electricity market. As the regulated
utilities and SRP continue increasing their retail rates, the
wholesale costs of power have stayed relatively flat.4
Furthermore, tribes that are serviced by incumbent
utilities—whether investor owned like APS, rural electric
cooperative, or a public power company like SRP—lack control
over both the source of power and the price they pay for it. A
tribal utility can directly access the wholesale market, or
negotiate for long-term electricity contracts, that will most
likely result in lower power costs for the tribal government,
enterprises, and tribal members who live on the reservation.

Revenue Generation and Job Creation

Instead of making payments to outside utilities, the tribal
government, enterprises and members will make payments instead to
the tribal utility. These revenues would go directly to a tribal
entity that is more responsive to the tribal community. The
revenues would also go toward electricity procurement, operations
and maintenance of the electricity system. In addition to energy
choice, the tribal utility will have more flexibility in operations
and customer service. Lastly, the tribal utility will result in
funds remaining in the tribal community.

Tribal utilities can also promote tribal member workforce
development and job creation through the operations and maintenance
of the utility. Depending on the size of the reservation, the
energy system, and the number of facilities to be serviced, there
can be dozens of new jobs for tribal members. If the tribal utility
makes the determination that it can produce its own
electricity— such as through distributed energy systems like
community solar, wind or small natural gas generation—the
construction and operation of those types of projects will result
in further job creation.

Legal Issues

As tribes consider the economic benefits of tribal electric
utility ownership and operation, there are several additional legal
benefits and considerations that should be included in that
analysis. For example, tribes should consider the following four
things.

Jurisdictional Status of Tribal Utility Authority

The five tribes that operate utilities in Arizona are not
subject to state law or Arizona Corporation Commission regulations
related to retail electricity service. Under longstanding federal
law principles, the state of Arizona lacks legal jurisdiction over
tribal entities operating on tribal lands.5 Any other
tribe in Arizona also may form a utility under tribal law, and that
utility will not be subject to ACC oversight. Instead, the tribe
itself would assert jurisdiction and authority under its tribal
utility. The tribal government would exercise governmental
authority over the tribal utility authority. This authority could
include the same type of regulatory authority exercised by the ACC
—that is, the tribal government can approve electricity
rates, customer service standards, renewable energy requirements,
interconnection standards, net metering policies, and other
regulatory responsibilities.

It may be prudent to obtain a jurisdictional disclaimer order
from the ACC to provide certainty and clarity. In assessing whether
the tribal utility would be subject to any ACC oversight, the tribe
will need to understand the physical footprint of the electrical
system. If the system serves any non-Indian customers who live
within (on non-Indian fee land) or near reservation lands, the
tribal utility may be subject to ACC jurisdiction. Of course, a
strong argument can be made that the state would still lack
jurisdiction over tribal utility services to non-Indians under the
test in White Mountain Apache Tribe v. Bracker6 and that
the tribe has jurisdiction under Montana v. United
States.7 But this legal analysis should be thoroughly
evaluated if this type of situation exists.

Corporate Form

While every tribe with a utility has created a wholly owned
tribal entity, there are still several choices for how to form the
tribal utility. Tribes can create for-profit or not-for- profit
entities. Tribes also can create a Section 17 corporation or a
tribally chartered corporation. The utility can be a separate legal
entity from the tribe, or a political subdivision of the tribe.
Each of these decisions has implications for utility governance,
tribal versus state jurisdiction, and financing
options.8

The primary legal benefits to forming a tribally chartered
not-for-profit tribal utility— similar to other public power
companies like SRP and L.A. Water and Power— is that it can
more likely qualify as a political subdivision of the tribe. This
in turn can shroud the tribal utility in the tribe's sovereign
immunity, including immunity from suit, state taxation and
regulatory jurisdiction. Furthermore, a political subdivision of
the tribe can issue tax-exempt bonds to raise financing for tribal
utility capital expenses and obtain other potential benefits of
federal funding from programs for which tribes are eligible.

On the other hand, creating a Section 17 for-profit tribal
utility—similar to an investor-owned utility like
APS—may create other financing opportunities for the tribal
utility. Typically a Section 17 corporation is treated as a
separate legal entity from the tribe.

Contractual Relations With Incumbent Utility

Whatever form the tribal utility takes, the first major
transaction is likely to be an agreement with the incumbent utility
to either: (1) negotiate a purchase/sale of the incumbent
utility's electricity infrastructure; or (2) negotiate a
service agreement for the incumbent utility to continue to own and
operate the electricity distribution infrastructure. A tribe
considering utility formation has to address the question of
ownership of the distribution system. In assessing its options, the
tribe should approach the incumbent utility to determine whether
the utility will enter into a voluntary agreement to sell the
distribution system, or whether the tribe will need to pursue
eminent domain proceedings. Alternatively, the tribe can enter into
an agreement with the incumbent utility to continue to operate and
maintain the distribution system, subject to the tribe's
jurisdiction.

Tribal utilities are a viable vehicle for tribes to reduce
energy costs, promote job creation, and exercise more control.

Power Purchase Contracts

To achieve electricity cost savings, the tribe will have to
identify a cheaper source of power. Power can be purchased on the
spot market (usually through an energy marketing firm), from an
electricity generator, or from another utility. The easiest way to
enter the spot market generally involves hiring an energy trading
company, which can both buy power at the purchase hub on behalf of
the tribal utility and schedule the delivery of that power. The
tribal utility also may enter into bilateral agreements with
independent power producers (independent entities that generate
power for sale in the wholesale market) and/or other utilities.

In any of these scenarios, in addition to buying power, the
tribal utility also will have to enter into wheeling
contracts—agreements with the transmission line
owners—to move the power from the purchase hub or place of
generation. One way to reduce these transmission costs is to
develop more distributed energy projects on tribal
lands—where the power will be used.

Conclusion

As tribes evaluate the economic and social benefits of tribal
utility enterprises, due consideration should be given to the legal
benefits—governance and jurisdictional control over energy
services and energy development— as well as the key initial
legal transactions (corporate formation, utility agreements and
energy purchase agreements). While each tribe's circumstances
are different, and tribal leadership goals will vary, on balance
tribal utilities are a viable vehicle for tribes to reduce energy
costs, promote job creation, and exercise more control over energy
services and energy development on tribal lands.

3. Navajo Tribal Utility Authority (NTUA) has developed
almost 50 MW of solar energy, which will be used both on and off
the Navajo Reservation. Kayenta Solar Project is Operational,
Navajo Times, June 22, 2017, available at: www.ntua.com/assets/
kayenta-solar-project-is-operational---- navajo-timespaper--- 06-22-2017.pdf.
NTUA also has a MOU with SRP to develop up to 500 MW of solar power
on the Navajo Reservation.

4. According to the Energy Information Administration,
the 2017 average residential retail rate for APS was 0.1357/kWh,for
SRP was 0.1159/kWh, and for TEP was 0.1205/kWh. On the other hand,
the average retail rate for Fort Mojave's tribal utility was
0.0829/kWh. The average wholesale rate for 2017 was .0329/kWh. See
www.eia.gov/electricity/ (last visited Jan. 7,
2019).

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